-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DNzSuyXJ3jK0yZlSkdC4mZNXMiZ2Bn7wal+MIRIqUci8wvyOgYcCOOCZKuXr+frQ lo1t7Pc69QMDnhxQ3iIwHg== /in/edgar/work/20000821/0000855684-00-000043/0000855684-00-000043.txt : 20000922 0000855684-00-000043.hdr.sgml : 20000922 ACCESSION NUMBER: 0000855684-00-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAHAINA ACQUISITIONS INC CENTRAL INDEX KEY: 0000855684 STANDARD INDUSTRIAL CLASSIFICATION: [6500 ] IRS NUMBER: 841325695 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27480 FILM NUMBER: 706818 BUSINESS ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 220 CITY: ALPHARETTA STATE: GA ZIP: 30005 BUSINESS PHONE: 7707546140 MAIL ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 220 CITY: ALPHARETTA STATE: GA ZIP: 30005 10-Q 1 0001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____to ___ Commission file number 0-27480 LAHAINA ACQUISITIONS, INC. (Exact Name of Registrant as Specified in Its Charter) Colorado 84-1325695 ----------------- --------------- (State or Other (IRS Employer Jurisdiction of Identification No.) Incorporation or Organization) 5895 Windward Parkway, Suite 220 Alpharetta, Georgia 30005 (Address of Principal Executive Offices) (770) 754-6140 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of outstanding shares of the Registrant's Common Stock, no par value per share, was 17,965,763 on August 7, 2000. LAHAINA ACQUISITIONS, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Page --------- Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 3 Consolidated Statement of Operations for the Nine 4 Months Ended June 30, 2000 Consolidated Statement of Stockholders' Deficit 5 Consolidated Statement of Cash Flows for the Nine 6 Months Ended June 30, 2000 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Financial Data Schedule 18 PART I - FINANCIAL INFORMATION Item 1. Financial Statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED BALANCE SHEETS (unaudited) June 30, September 30, 2000 1999 -------------- -------------- ASSETS Cash and cash equivalents $ 24,274 $ 15,300 Restricted cash 490,298 77,352 Restricted certificates of deposit 126,607 126,249 Real estate held for sale - 3,650,000 Real estate held for development 3,286,145 2,958,143 Foreclosed real estate 593,960 593,960 Mortgage loans held for sale, net - - Options to acquire real estate 408,353 122,893 Property and equipment, net 221,384 87,101 Goodwill, net 1,588,995 903,042 Note receivable - sale of Beachside Commons I, Inc. 2,107,353 - Note receivable - sale of real estate option 915,750 - Note receivable - sale of lots 600,000 - Other assets 854,383 471,386 --------------- -------------- Total assets $ 11,217,502 $ 9,005,426 =============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT Liabilities: Accounts payable and accrued expenses $ 2,232,349 $ 1,837,328 Accrued interest payable 478,374 298,432 Notes payable - warehouse line 1,090,587 1,132,442 Notes payable 5,298,817 7,537,432 Due to related parties and stockholders 2,882,488 611,057 Deferred revenue 200,249 216,500 Other liabilities - 9,500 --------------- -------------- Total liabilities 12,195,364 11,642,691 --------------- -------------- Commitments and contingencies Redeemable stock: Common stock, no par value; 3,250,000 shares issued and outstanding entitled to redemption under certain circumstances (377,001) (92,529) --------------- -------------- Stockholders' deficit: Preferred series A convertible stock, 10,000,000 shares authorized, no shares issued or outstanding - - Common stock, no par value, 800,000,000 shares authorized, 13,603,263 shares issued and outstanding at June 30, 2000 and 12,967,343 shares issued and outstanding at September 30, 1999 - - Additional paid in capital (168,141) (1,389,431) Accumulated deficit (428,220) (1,155,305) --------------- -------------- (596,361) (2,544,736) --------------- -------------- Total liabilities and stockholders' deficit $ 11,217,502 $ 9,005,426 =============== ==============
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Three Months Nine Months Ended Ended June 30, June 30, 2000 2000 ------------------ ------------------- Revenue: Mortgage brokerage services $ 2,893,131 $ 6,753,618 Real estate services 2,000,000 3,750,000 ------------------ ------------------ Total revenue 4,893,131 10,503,618 ------------------ ------------------ Operating expenses: Broker commissions 2,502,567 5,796,186 Cost of real estate sold 498,086 693,615 Salaries and employee benefits 614,548 1,268,938 General and administrative 275,517 965,226 Professional expenses 178,927 481,802 Occupancy expense 39,410 117,659 Amortization of goodwill 27,271 60,048 Depreciation and amortization 19,727 33,811 ------------------ ------------------ Total operating expenses 4,156,053 9,417,285 ------------------ ------------------ Operating income 737,078 1,086,333 ------------------ ------------------ Other (expense) income: Other income (expense) (72,058) 485,094 Interest expense (191,870) (573,842) ------------------ ------------------ (263,928) (88,748) ------------------ ------------------ Income before income taxes 473,150 997,585 Income tax expense 192,500 262,500 ------------------ ------------------ Net income $ 280,650 $ 735,085 ================== ================== Basic earnings per share $ 0.02 $ 0.06 ================== ================== Diluted earnings per share $ 0.02 $ 0.04 ================== ================== Weighted average shares outstanding - basic 13,557,769 13,226,360 ================== ================== Weighted average shares outstanding - diluted 18,306,917 17,874,252 ================== ==================
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (unaudited) Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total -------------- -------------- -------------- --------------- -------------- Balance at September 30, 1999 12,967,343 $ - $ (1,389,431) $ (1,155,305) $ (2,544,736) Net income - - - 735,085 735,085 Cashless exercise of options 325,920 - - - - Options exercised 50,000 - 17,500 - 17,500 Stock for Purchase of Paradigm 260,000 - 901,059 - 901,059 Warrants issued in payment of fees - - 302,731 - 302,731 -------------- -------------- -------------- --------------- -------------- Balance at June 30, 2000 13,603,263 $ - $ (168,141) $ (420,220) $ (588,361) ============== ============== ============== =============== ==============
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Nine Months Ended June 30, 2000 --------------- Cash Flows from Operating Activities: Net income $ 735,085 Adjustments: Depreciation and amortization 93,859 Income relating to restructuring of convertible notes (147,438) Income relating to forgiveness of debt (135,241) Valuation adjustment relating to note receivable (34,296) Gain on sale of real estate held for development (1,965,604) Gain on sale of option to acquire real estate (1,090,781) Interest income accrued on notes related to real estate sales (60,750) Proceeds from sale of real estate held for development 600,000 (Increase) decrease in: Restricted cash (423,637) Restricted certificates of deposit (358) Options to acquire real estate (344,679) Costs associated with development of real estate (962,398) Due from former shareholders of Accent Mortgage Services, Inc. under indemnity (284,472) Other assets (219,102) (Decrease) increase in: Accounts payable, accrued expenses and other liabilities 806,286 Accrued interest payable 266,597 Deferred revenue (16,251) --------------- Net cash provided by operating activities (3,183,180) --------------- Cash Flows from Investing Activities - Purchase of property and equipment (14,200) --------------- Net cash used in investing activities (14,200) --------------- Cash Flows from Financing Activities: Proceeds from issuance of notes payable 3,626,616 Proceeds from exercise of stock options 17,500 Repayment of notes payable (1,090,943) Increase in amounts due to related parties 653,181 --------------- Net cash used in financing activities 3,206,354 --------------- Net increase in cash and cash equivalents 8,974 Cash and cash equivalents at beginning of the period 15,300 --------------- Cash and cash equivalents at end of the period $ 24,274 ===============
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (continued) Nine Months Ended June 30, 2000 --------------- Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 385,422 Supplemental disclosures of non-cash transactions: Sale of Beachside Commons I, Inc. Real estate held for sale $ (3,650,000) Notes payable assumed by purchaser $ 1,547,894 Notes receivable $ 2,028,057 Other assets and liabilities assumed by purchaser, net $ 74,049 Sale of lots Gross sales price $ (2,000,000) Note to related party assumed by purchaser $ 506,750 Notes payable assumed by purchaser $ 893,250 Note receivable $ 600,000 Sale of option to acquire real estate Gross sales price $ (1,150,000) Notes receivable $ 900,000 Debt forgiveness $ 250,000 Purchase of Paradigm Goodwill $ (746,001) Property and equipment $ (155,058) Issuance of common stock $ 901,059 Other financing transactions Notes payable $ (2,175,000) Due to related parties and stockholders $ 2,175,000 Warrants issued in lieu of cash for debt issueance costs $ (302,731) Other assets $ 302,731
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended June 30, 2000 (unaudited) The information presented herein as of June 30, 2000, and for the nine months ended June 30, 2000 is unaudited. The September 30, 1999 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 1. Summary of Significant Accounting Policies The accompanying interim consolidated financial statements have been prepared by us in accordance and consistent with the accounting policies stated in our 1999 Annual Report on Form 10-K/A and should be read in conjunction with the consolidated financial statements appearing therein. In the opinion of management, all adjustments necessary for a fair presentation of such consolidated financial statements are reflected in the interim periods presented. Additionally, all adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements. 2. Acquisitions and Divestitures Sale of Beachside Commons I, Inc. On December 30, 1999, the Company sold Beachside Commons I, Inc., a wholly owned subsidiary, to Beachside Commons Holding, LLC. The purchase price, $4,550,000, consisted of an assumption of $1,550,000 of debt and a $3,000,000 note, bearing interest at 6% and due December 31, 2000, from Beachside Commons Holding, LLC. The note was recorded at a discount of $972,000 at December 30, 1999. The note is secured solely by 1,175,000 shares of common stock of Lahaina held by an escrow agent. The Company values the note based upon the lower of the face amount of the note less the amortized discount and the market value of the stock held as collateral. At June 30, 2000 and December 31, 1999, the note was valued at $2,234,919 and $1,944,877, respectively. As a result of amortizing the discount, subject to the market value limitation noted, the Company has recorded Other Expense of $173,000 for the quarter ended June 30, 2000 and Other Income of $34,000 for the nine months ended June 30, 2000. Paradigm Purchase On March 20, 2000, the Company completed the purchase of certain of the assets of Paradigm Mortgage Associates, Inc., a Florida corporation, for 500,000 shares of common stock of Lahaina. Under terms of the Asset Purchase Agreement, Paradigm guaranteed that the Branch Operations acquired by the Company would maintain a minimum monthly volume of mortgage loan originations of $19,000,000 for at least twelve of the eighteen months subsequent to the transaction. If the Minimum Volume is not achieved in at least twelve of the eighteen months, for every month in addition to six months that the Minimum Volume is not achieved, Seller shall forfeit 20,000 shares. The 240,000 shares that are contingently returnable are treated as contingently issuable shares. The purchase of these assets is recorded at the market value of the 260,000 shares of stock ($3.47 per share or a total of $901,059) that are not contingently returnable with $155,058 allocated to property and equipment and the remaining $746,001 allocated to goodwill to be amortized over 15 years. If the minimum monthly volumes are achieved, the shares no longer at risk of being cancelled will be recorded at the value of the stock at the issue date and goodwill will be increased accordingly. Paradigm agreed to reimburse the Company for transition costs associated with integrating the operations acquired with those of the Company. These costs, to be determined in the sole discretion of the Company, shall not exceed $900,000 and the period involved runs to March 20, 2001. To date, the Company has identified $18,000 of such costs, which have been billed and collected. The reimbursement was recorded as a reduction of the appropriate expense. 300,000 of the shares issued to purchase the Paradigm assets are held in escrow with 150,000 segregated and specified to secure payment of indemnity claims and the performance guarantee and 150,000 shares segregated and specified to secure payment of transition costs claims. 3. Notes Payable The Company has the following notes payable at June 30, 2000: Real estate indebtedness: Note payable secured by certain parcels of land held for development, $ 2,645,595 due September 1, 2002. Interest only is payable monthly at a rate of 9.5%. Note payable secured by certain parcels of land held for development. 6,443 Interest only is payable quarterly at a rate of 8.25%. Non interest bearing note secured by certain parcels of land held for 550,000 development, due June 7, 2000. -------------- Total real estate indebtedness 3,202,038 -------------- General corporate indebtedness: 8% Note payable due September 25, 2000. Company may elect to pay the note, 525,000 plus accrued interest, with stock or cash. If the note is not paid on or before date, the Holder may require conversion. The note is secured by shares of stock equal to the number of shares issuable upon conversion. 8% Note payable due October 25, 2000. Company may elect to pay the note, plus accrued interest, with stock or cash. If the note is not paid on or before date, the Holder may require conversion. The note is secured by shares of stock equal to the number of shares issuable upon conversion. 500,000 8% Note payable due December 26, 2000. Company may elect to pay the note, plus accrued interest, with stock or cash. If the note is not paid on or before date, the Holder may require conversion. The note is secured by shares of stock equal to the number of shares issuable upon conversion. 475,000 Note payable secured by certain parcels of real estate, due October 24, 2000. Interest 161,750 only is payable monthly at a rate of 15%. Note payable secured by certain parcels of real estate, due December 2, 2000. Interest 350,000 only is payable monthly at a rate of 15%. Insurance premium note. Interest at 11.5%, with monthly payments of $14,950. 85,029 -------------- Total general corporate indebtedness 2,096,779 -------------- Total notes payable $ 5,298,817 ============== Due to related parties and stockholders: 9% Convertible Note, secured by a second mortgage on certain parcels of 459,586 real estate, due January 31, 2001. Interest only payable quarterly in arrears. 9% Convertible Note, secured by a second mortgage on certain parcels of 500,000 real estate, due August 18, 2001. Interest only payable quarterly in arrears. Note payable to a related party secured by certain parcels of land held for 89,307 development, due July 1, 2000. Interest only is payable quarterly at a rate of 8.25%. Unsecured note payable to a related party, due December 31, 2000. Interest only 904,075 payable at maturity at a rate of 9% per annum. Unsecured note payable to the majority shareholder, with no stated interest rate, 777,000 due on demand. Interest is accrued at 10.25% per annum. Unsecured note payable to a related party, with no stated interest rate, 71,720 due on demand. Interest is accrued at 8.25% per annum. Unsecured note payable to a related party, with no stated interest rate, 16,800 due on demand. Interest is accrued at 8.25% per annum. Unsecured note payable to a related party, with no stated interest rate, 37,000 due on demand. Interest is accrued at 8.25% per annum. Unsecured note payable to a related party, with no stated interest rate, 22,000 due on demand. Interest is accrued at 8.25% per annum. Unsecured note payable to a related party, with no stated interest rate, due on demand. Interest is accrued at 8.25% per annum. 5,000 -------------- Total due to related parties and stockholders $ 2,882,488 ==============
4. Restructuring of Certain Debt On February 17, 2000, the Holder of the Company's convertible notes (the "Notes") entered into an agreement with a party related to the Company to exchange the Notes, along with all accrued interest, accrued liquidated damages and other features relating to the Notes, for a new security provided by the related party. As a result, the related party has agreed to amend certain provisions of the Notes (including, but not limited to, the provisions for liquidated damages, requirements for filing and maintaining an effective registration statement and conversion terms) and to waive permanently all previous accrued interest and accrued liquidated damages pertaining to the Notes. The Company reversed accrued interest payable and accrued liquidated damages payable totaling $287,438 during the three-month period ended December 31, 1999, and is in compliance with the amended terms and conditions of the Notes. The Company also wrote-off approximately $140,000 of other assets, primarily related to the costs of maintaining an effective registration statement on Form S-1 (or other Form) for the shares of Lahaina common stock into which the Notes might be converted. 5. Commitments and Contingencies In July and August 1998, Accent Mortgage Services, Inc. (AMSI) acquired from SGE and related entities notes secured primarily by first security interest in residences. The selling entity, SGE, has been placed in receivership by Order of the Superior Court of Tift County, Georgia. The receiver is charged with the responsibility of settling competing claims, if any, to loans made and sold by SGE. Many of the loans acquired by the Company from SGE were later sold to Matrix Bank for a total purchase price of $623,032. Matrix Bank contends some of the loans are subject to competing claims or are non-performing assets, and has demanded that the Company reacquire these loans. The Company is negotiating with Matrix to resolve these issues, however, the ultimate resolution is unknown at this time. The Company has not provided for any loss that may result from the Matrix transaction, however should the ultimate resolution be unfavorable to the Company, any losses would be subject to the indemnification from the former AMSI shareholders. On May 1, 2000 the U.S. Department of Housing and Urban Development issued Mortgagee Letter 00-15 addressing "Prohibited Branch Arrangements" and providing guidance and clarification regarding the Department's requirements for branch offices of HUD/FHA approved mortgagees. A significant portion of the loan volume originated and brokered by the Company's branch network would be in jeopardy if HUD/FHA approval were lost, and the Company could be subject to HUD sanctions if it were found to be in violation of HUD Regulations. Management is of the opinion that its current method of operation is substantially in compliance with the regulations. The Company is subject to various litigation in the ordinary course of business. In the opinion of management, resolution of such matters will not have a significant effect on the financial position of the Company. 6. Segment Information The Company operates in two business segments - Mortgage Brokerage and Real Estate Development. Mortgage Brokerage provides mortgage brokerage services to consumers through a network of over 100 branch offices located in 25 states. Real Estate development is engaged in the acquisition, development and sale of a variety of real estate projects. Corporate services include human resources, legal, accounting and various unallocated overhead costs. There are no inter-segment revenues. Three months Nine months ended ended -------------- -------------- June 30, 2000 ------------------------------- Revenues Mortgage Brokerage $ 2,893,131 $ 6,753,618 Real Estate Development 2,000,000 3,750,000 Corporate - - -------------- -------------- $ 4,893,131 $ 10,503,618 ============== ============== Operating income (loss) Mortgage Brokerage $ 32,020 (13,724) Real Estate Development 1,387,775 2,743,573 Corporate (682,717) (1,643,516) -------------- -------------- $ 737,078 $ 1,086,333 ============== ============== Identifiable assets Mortgage Brokerage $ 5,060,037 Real Estate Development 3,660,305 Corporate 2,497,161 -------------- $ 11,217,502 ============== ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in this report. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Those statements relate to dividends; business plans, programs and trends; results of future operations; uses of future earnings; satisfaction of future cash requirements; funding of future growth; acquisition plans; and other matters. Words or phrases such as "will", "hope", "expect", "intend", "plan" or similar expressions are generally intended to identify forward-looking statements. Those statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed herein. The principal risks and uncertainties that may affect the Company's actual performance and results of operations include the following: general economic conditions and interest rates; adverse weather; changes in property taxes and energy costs; changes in federal income tax laws and federal mortgage financing programs; governmental regulation; changes in governmental and public policy; changes in economic conditions specific to one or more of the Company's markets and businesses; competition; availability of raw materials; and unexpected operations difficulties. Other risks and uncertainties may also affect the outcome of the Company's actual performance and results of operations. Readers are cautioned not to place undue reliance on the forward-looking statements made in, or incorporated by reference into, this Quarterly Report on Form 10-Q or in any document or statement referring to this Quarterly Report on Form 10-Q. Results of Operations THREE MONTHS ENDED June 30, 2000 Revenues Revenues for the quarter ended June 30, 2000 totaled $4,893,000 an increase of $2,057,000 when compared to the first quarter and $2,119,000 when compared to the second quarter. Revenue from Mortgage Brokerage Services was $2,893,000, an increase of $1,207,000 over the first quarter and $719,000 over the second quarter. Mortgage loan volume originated and brokered by the Company's branch operations for the quarter totaled $80.9 million. This represents an increase over the previous quarter of 39% and over the first quarter of 79%. Revenue from Real Estate Services for the quarter was $2,000,000, an increase of $1,400,000 over the second quarter and $850,000 over the first quarter. Due to the type and small number of projects currently under development, the Company does not anticipate that revenue from real estate activities will necessarily be consistent from period to period. Operating Expenses Operating expenses for the quarter ended June 30, 2000 total $4,119,000, an increase from $2,953,000 in the previous quarter and $2,309,000 for the first quarter. Operating expenses for the quarter ended June 30, 2000 were 84.2% of total revenue for the period. The principal components of operating expenses for the period were broker commissions ($2,503,000 or 60.8% of total operating expense), salaries and employee benefits ($615,000 or 14.9% of total operating expenses), general and administrative expenses ($276,000 or 6.7% of total operating expenses), and professional fees ($179,000 or 4.3% of total operating expenses). Broker commissions are typically commissions paid by the Company to employees at the branch offices who are responsible for originating the loans brokered by the branch. The relationship between revenue and the related Commission expense for the three quarters is as follows: Quarter 1 Quarter 2 Quarter 3 Mortgage Brokerage Revenue $ 1,686,000 $ 2,174,000 $ 2,893,000 Broker Commissions 1,493,000 1,800,000 2,503,000 Percentage 88.6% 82.8% 86.5% General and administrative expense in the quarter ended June 30, 2000 was $157,000 lower than in the previous quarter, and $29,000 higher than in the first quarter. Cost associated with the acquisition and integration of the Paradigm operation are believed to have been a temporary matter. Other (Expense) Income Other (expense) income for the quarter ended June 30, 2000 is a net expense of $264,000. This consists primarily of interest expense of $192,000 and the $72,000 net expense from interest and miscellaneous income of $100,000 and the $173,000 expense from the quarterly adjustment of the carrying value of the Beachside Note Receivable. Income before Income Taxes, Tax Provision, Net Income Income tax expense is provided for on the basis of estimated taxable income which differs from the income on the financial statements, primarily as a result of the fluctuation in the valuation of the Beachside Commons note receivable. As noted above, in the quarter ended June 30, 2000, this adjustment was a non deductible expense of $173,000. NINE MONTHS ENDED June 30, 2000 Revenues Revenues for the nine-month period ended June 30, 2000 aggregated $10,504,000, with $6,754,000 (64.3%) from Mortgage Brokerage Services. Mortgage loan volume originated and brokered by the Company's branch operations totaled $184.3 million. Real estate revenues totaled $3,750,000, (35.7% of total revenue). $2,600,000 or 69.3% of the real estate revenue is attributable to the sale of property developed by the Company. The remaining $1,150,000 of Real Estate Services revenue represents the sale of an option to acquire property for development that was owned by the Company. Operating Expenses Operating expenses for the nine-month period ended June 30, 2000 aggregated $9,380,000 or 89.3% of total revenue for the period. The principal components of operating expenses for the period were Broker commissions ($5,796,000 or 61.8% of total operating expenses), salaries and employee benefits ($1,269,000 or 13.5% of total operating expenses), general and administrative ($965,000 or 10.3% of total expenses), and professional expenses ($482,000 or 5.1% of total operating expenses). Broker commissions ($3,294,000) are typically commissions paid by the Company to employees at the branch offices who are responsible for originating the loans brokered by the branch. For the nine-month period ended June 30, 2000, Broker commissions were 85.8% of Mortgage Brokerage services revenue. Other (Expense) Income Other (expense) income for the nine-months ended June 30, 2000 is a net expense of $89,000. This consists of Other Income of $485,000 which consists primarily of the year to date valuation adjustment to the Beachside Commons note ($34,000), income from the restructuring of certain of the Company's convertible notes ($147,000), income from the elimination of accounts payable in the Beachside transaction ($135,000), interest income on the notes from the Beachside and real estate option sale ($115,000), and is reduced by interest expense of $574,000. Income before Income Taxes, Tax Provision, Net Income For the nine-month period ended June 30, 2000, the Company recorded income tax expense of $262,500. The sale of the stock of a subsidiary (Beachside Commons I) generated taxable income significantly different from that reported for financial statement purposes. Subsequent fluctuations in the valuation of the note receivable will result in income or loss for financial statement purposes that result in no tax expense or benefit. Liquidity and Capital Resources The Company used cash in operating activities totaling $3,183,000 for the nine-month period ended June 30, 2000. The principal component of cash generated in operating activities was the Company's net income of $735,000. Increases in restricted cash ($424,000), costs associated with the development of real estate ($962,000), options to acquire real estate ($345,000), and amounts due from former shareholders of Accent Mortgage Services, Inc. ($284,000) offset cash generated by net income. Income from restructuring notes ($147,000), forgiveness of debt ($135,000) and the revaluation of the Beachside note receivable ($34,000) offset cash generated by net income. Gains on sales of real estate ($1,502,000) and the gain on the sale of options to acquire real estate ($1,091,000) were generated in transactions that provided no cash to the company and likewise offset cash generated by net income. The sales resulted in significant reductions in outstanding debt ($1,650,000), and notes receivable aggregating $1,500,000. Proceeds from the sale of real estate held for development ($600,000), increases in accounts payable and accrued expenses ($806,000), and accrued interest ($267,000) provided cash flow from operations. Cash provided from financing activities totaled $3,206,000 for the period, primarily consisting of borrowings from non-related parties ($3,627,000) and related parties and stockholders ($654,000), partially offset by repayments of $1,091,000. The Company had $24,000 of unrestricted cash and cash equivalents at June 30, 2000. With this small cash balance and the historical negative cash provided by operations, the Company may not be able to pay its obligations in a timely manner. Management's plan is to continue to attempt to restructure or refinance its existing obligations, find a source of equity, increase the volume of mortgage loans brokered through its mortgage operations, develop and sell its various parcels of real estate and, ultimately, to achieve sustainable profitability and positive cash flow. While management is currently holding discussions with potential sources of debt and equity financing, there can be no assurance that they will be successful in the discussions. The Company has contracts for the sale of lots and parcels in its Peachtree Industrial development totaling more than $1,350,000 and believes the transactions will close before the end of September. There can be no assurance that these transactions will close, or if they do, that they will generate sufficient cash to satisfy the needs of the Company. In early July 2000, several employees of the Company were granted options to acquire 700,000 shares of freely trading common stock for $1,000,000. The employees exercised these options on July 6, 2000 by executing a note to the Company. The Company anticipates that the note will be paid in full within the next 60 days to provide an infusion of cash. The Company anticipates collection of at least some of the amount due from former shareholders of Accent Mortgage Services, Inc. under an indemnity agreement executed as part of the original agreement for the purchase of Accent Mortgage Services, Inc. by The Accent Group. There can be no assurance that an increase in mortgage loan volume will be achieved such that sufficient cash will be generated. The Company has announced that it intends to dividend a significant ownership percentage (80% or more) in the mortgage operations to existing shareholders. Profitability and cash flow from the separate operations will no longer be available to support the operating or financing needs of each other. A $550,000 note secured by parcels of real estate was due on June 7, 2000 and the Company was unable to make the payment. The Company is negotiating with the holder of this note in an effort to obtain an extension of the note. If the Company is not successful in these efforts, the note will be in default and interest at 18% begins accruing from the date of the note in addition to any other remedies the holder might seek. The Company believes it will be successful in these negotiations. The Company intends to pursue selected acquisition opportunities. The timing or success of any acquisition efforts is unpredictable. Accordingly, the Company is unable to accurately estimate its expected capital commitments. Funding for future acquisitions will likely come from a combination of additional borrowings and the issuance of additional equity. Year 2000 Readiness The Company has not incurred any material costs nor has it experienced any operational problems as a result of Year 2000 issues. New Accounting Standard In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standard ("SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which will require that all derivative financial instruments be recognized as either assets or liabilities on the balance sheet. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133, which deferred the implementation of SFAS No. 133 until June 15, 2000. SFAS No. 133 will be effective for the Company's first quarter of fiscal 2001. The Company does not expect the adoption of SFAS No. 133 to have a material effect on the Company's consolidated financial statements. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN 44"), which is effective July 1, 2000, except that certain conclusions in this Interpretation which cover specific events that occur after either December 15, 1998 or January 12, 2000 are recognized on a prospective basis from July 1, 2000. This Interpretation clarifies the application of APB Opinion 25 for certain issues related to stock issued to employees. The Company believes its existing stock based compensation policies and procedures are in compliance with FIN 44 and therefore, the adoption of FIN 44 will have no material impact on the Company's financial condition, results of operations or cash flows. In March 2000, the FASB issued Emerging Issues Task Force Issue No. 00-2, "Accounting for Web Site Development Costs" ("EITF 00-2") which is effective for all such costs incurred for fiscal quarters beginning after June 30, 2000. EITF 00-2 establishes accounting and reporting standards for costs incurred to develop a web site based on the nature of each cost. Currently, as the Company has de minimis web site development costs, the adoption of EITF 00-2 would have no impact on the Company's financial condition or results of operation. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from changes in interest rates. The Company had minimal indebtedness subject to variable interest rates at the beginning of the year, and all of this was paid off during the three-month period ended March 31, 2000. Most of the Company's debt is relatively short term (due within the next 24 months) and in most cases will be renegotiated. Assuming March 31, 2000 debt levels (exclusive of stockholders and related parties) an increase or decrease in interest rates of one percentage point would impact the Company's interest expense by about $60,000 per year. The following table presents the principal cash flows and related weighted average interest rates on debt by expected maturity date as of June 30, 2000: Fair 2000 2001 2002 Total Value --------------- --------------- --------------- -------------- -------------- Fixed rate debt $ 5,393,152 $ 1,275,000 $ 2,645,595 $ 9,313,747 $ 9,313,747 Average interest rate 8.34% 9.00% 9.50% 8.76%
PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities The Company borrowed $550,000 from GCA Strategic Investment Fund, Limited, under terms of a note secured by parcels of real estate. The note became due on June 7, 2000. The Company is negotiating with the holder of this note in an effort to obtain an extension of the due date. If the Company is not successful in these efforts, in default the note bears interest at 18% which will begins accruing from the date of the note in addition to any other remedies the holder might seek. The Company believes it will be successful in these negotiations. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit No. Description of Exhibit 2.1 Second Amendment to Asset Purchase Agreement dated March 20, 2000 (1) 27 Financial Data Schedule (1) Incorporated by reference to the Company's Current Report on Form 8-K/A dated June 5, 2000 and filed with the Commission on June 5, 2000. B. Reports on Form 8-K During the quarter ended March 31, 2000, the Company filed with the Commission the following reports on Form 8-K: Current Report on Form 8-K/A dated July 24, 2000 and filed with the Commission on July 24, 2000 to clarify a previous filing about a change in Accountants. Current Report on Form 8-K dated July 13, 2000 and filed with the Commission on July 14, 2000, regarding changes in Registrant's Certifying Accountant. Current Report on Form 8-K/A (Amendment No.1) dated June 5, 2000 and filed with the Commission on June 5, 2000, amending a previous filing relating to the Company's acquisition of certain assets of Paradigm Mortgage Associates, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAHAINA ACQUISITIONS, INC. Dated: August 21, 2000 By: /s/ L. Scott Demerau - -------------------------- ---------------------------------------- L. Scott Demerau President and Chief Executive Officer EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated unaudited financial statements of Lahaina Acquisitions, Inc. for the nine-month period ended June 30, 2000, and is qualified in its entirety by reference to such consolidated unaudited financial statements. 0000855684 LAHAINA ACQUISITIONS INC 1 US Dollars 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 1 514,572 126,607 0 0 0 0 221,384 0 11,217,502 12,182,864 0 0 0 0 (168,141) 11,217,502 3,750,000 10,503,618 693,615 8,723,670 (485,094) 0 573,842 997,585 262,500 0 0 0 0 735,085 .06 .04
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